Inflation and economy explained: Yahoo Finance Chartbook
Yahoo Finance's lates Chartbook contains thirty-three charts from experts across the industry to start 2024. Yahoo Finance caught up with several of the experts to break down the story of the markets and the economy right now.
Yahoo Finance Reporter Josh Schafer discusses Capital Economics Deputy Chief Economist Andrew Hunter's inflation chart, comparing core PCE year over year to annualized six-month percentage change.
eToro US Investment Analyst Callie Cox brings in her chart of large vs. small cap ETFs in the stock market, where small caps are struggling to keep up, saying "As economic data improves...I expect small caps to catch up."
Charles Schwab Chief Investment Strategist Liz Ann Sonders' chart focuses on the correlation between the S&P 500 and 10-year treasury yields, urging investors to look for opportunities in a variety of investments.
Sahm Consulting Founder Claudia Sahm breaks down the "Sahm Rule", a recession indicator. Sahm said, "I'm very happy to report...we are not in a recession."
Josh Schafer explains why the economy is tightening, using Deutsche Bank Securities Chief US Economist and Head of US Economic Research Matthew Luzzetti's chart on the real federal-funds rate.
Video highlights:
00:00:04 - Yahoo Finance's Myles Udland, Seana Smith, and Josh Schafer introduce the new Chartbook
00:00:37 - Josh Schafer breaks down inflation falling below the Fed's target rate
00:01:01 - eToro US Investment Analyst Callie Cox
00:01:24 - Charles Schwab Chief Investment Strategist Liz Ann Sonders
00:01:58 - Sahm Consulting Founder Claudia Sahm
00:02:35 - Josh Schafer talks potential rate cuts
Video Transcript
SEANA SMITH: Yahoo Finance's launching the chart book. It's a look at key charts from the top minds on Wall Street. To give you some insight into how leading market strategists and economists are thinking about the market and economy in 2024, here with me, we've got the head of news Myles Udland and markets reporter Josh Schafer.
Guys, there is a lot to break down. And, Josh, you really have led the charge for this-- for us here for the chart book. Talk to us just about how you guys identified these charts and what we're trying to get at here with this.
JOSH SCHAFER: Yeah, so we ask every economist or strategists a basic question, which is, what is the most important chart to investors right now? So we broke out the chart book which has more than 30 charts from Wall Street's top strategists and economists into themes. And I'm standing next to one theme here, which was a clear takeaway inflation.
And the chart we're looking at here is PCE, the Fed's preferred target or preferred measure, which is core PCE. And you can see the blue line here. Core PCE on a six-month annualized basis. So over the last six months, now below the Fed's target.
CALLIE COX: You know, I see this as skepticism about the economy up until now, especially if you consider the fact that in a bull market, small caps usually lead in the first year. We just didn't see that. But as economic data improves, as leading indicators improve, especially confidence that we're going to get in a few minutes, I expect small caps to catch up. And I think that could be one of the biggest storylines of the market this year.
LIZ ANN SONDERS: Both on the fixed income side and the equity side, we've been saying stay up in quality. So on the equity side, that means quality-oriented factors like strong free cash flow and interest coverage, strength of balance sheet, good earnings profile. On the fixed income side, means you want to avoid the really high risk areas.
Lots of opportunities obviously in treasuries. More of a focus on investment grade corporates as opposed to high yield or junk. And then for some investors, there's opportunities in munis as well. But that's going to vary from investor to investor.
CLAUDIA SAHM: The summer is a way to say, hey, are we in a recession or not? So it's an indicator. It doesn't forecast anything. And I'm very happy to report that it is in a good place. We are not in a recession.
As it looks at the national unemployment rate, that really tells us a lot about how the economy is doing. And, in particular, for a recession indicator, we look for relatively small changes over time. That's what it's charting. And every time we go into a recession, it has gotten above a half a percentage point and then kept going.
And right now, it's about 2/10 of a percentage point. So we are not in a recession.
MYLES UDLAND: On the street, the street is still very optimistic that we are going to get a rate cut, if not at the March meeting. Yes, those odds have come down. But they're still optimistic we're going to get it before the end of the first half of the year.
JOSH SCHAFER: Well, because I think most people in their inflation forecast right now still see inflation coming down, right? And I think back to the real Fed funds rate chart that we have in our chart book, the Yahoo Finance chart book online from Matt Mazzetti at Deutsche Bank. When you have inflation coming down, and the rate the interest rate stays at the same level, you're naturally getting more restrictive.
